20VC: Raising $105m in Just 13 Months Over 3 Separate Rounds, The 5 Core Ways VCs Can Add Value & How Founders Can and Should Fully Leverage Their Cap Table with Kurt Rathmann, Founder & CEO @ ScaleFactor

Kurt Rathmann is the Founder & CEO @ ScaleFactor, the startup providing an automated bookkeeping solution at its core, bringing all of your company’s important financial information into one place. To date, Kurt has raised over $105m with ScaleFactor from the likes of Byron Deeter @ Bessemer, Coatue, Canaan Partners, Stripes Group and Firebrand to name a few. As Michael @ Coatue told me before the show, there is no way Kurt was not going to be the founder of a bookkeeping company given his background. Prior to ScaleFacotr, Kurt was the CFO of KNS Communications and a Senior Audit Professional @ KPMG. In Today’s Episode You Will Learn: 1.) How did Kurt make his way into the world of startups and come to found the gamechanger for bookkeeping in the form of ScaleFactor? Does Kurt believe that Founders do need to be mission-driven or can founding a company be a more analytical exercise? 2.) How did it come to be that Kurt raised 3 separate funding rounds and over $105m in just 13 months? How does Kurt feel about the saying, "when there is money on the table, take it"? Having had his B and C pre-empted, how does Kurt feel about the rise of pre-emptive rounds today? How did Kurt approach the mental challenge of transitioning from resource-starved to relative resource abundance? Was that tough to do? 3.) What is Kurt's biggest advice to founders when it comes to investor selection? What does Kurt believe are the 5 things that VCs can do to add value? Why does Kurt believe it is the responsibility of the founder to extract that value from the VC? What can founders do to really get the most out of their investors? What has Kurt found to be the biggest value from his cap table? Where do founders think VCs add value but they do not? 4.) What are some very unique and deliberate things that Kurt does to create an amazing culture at ScaleFactor? How does he advise on creating great energy in the office itself? How does Kurt think about retaining that core ethos with the expansion to multiple offices? What have been some of the biggest challenges in scaling communications internally? 5.) Does Kurt believe that being outside of a core tech hub severely limits his ability to hire the best talent? What do founders outside of these hubs need to very strategically do? How does being outside of a core hub also impact how Kurt thinks founders need to approach fundraising? What specifically can they do to increase their odds? Items Mentioned In Today’s Show: Kurt’s Fave Book: The Empowered Challenger Playbook: How Brands Can Change the Game, Steal Market Share, and Topple Giants As always you can follow Harry, The Twenty Minute VC and Kurt on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  My word, I'm so excited for our first Founder Friday episode of 2020 here on the 20 Minute VC. We have such a special year of episodes ahead for you with the likes of Vinod Khosla, Howard Marks, Patrick Collison and more incredible guests coming on the show. So stay tuned there and kicking us off in the Founder Hot Seat today. I'm so excited to welcome a truly special founder who raised three rounds of financing in over a hundred million dollars in about a year. So with that, I'm delighted to be joined by Kurt Rathman, founder and CEO at Scalefactor, the startup providing an automated bookkeeping solution at its core, bringing all of your company's important financial information into one place. To date, Kurt has raised over a hundred and five million dollars in funding with Scalefactor from the likes of Byron Dieter at Bessemer, Co2, Canaan Partners, Stripes Group and Firebrand, just to name a few.

• 0:44Harry Stebbings?

  As Michael at Co2 told me before the show, there is no way Kurt was not going to be the founder of a bookkeeping company, given his background. Prior to Scalefactor, Kurt was the CFO at KNS Communications and a senior audit professional at KPMG. I do also want to say a huge thank you to Byron at Bessemer, Michael Gilroy, Thomas LaFonte and John Fine for providing some fantastic question suggestions today. I owe you many mojitos for that. But before we move into the show today, this episode is brought to you by Silicon Valley Bank. For over 35 years, Silicon Valley Bank has been the bank for visionaries of all kinds, people and businesses who've revolutionized everything from software to social media, from workspaces to wine. With nimble banking services and solutions, Silicon Valley Bank helps startups adapt to the changing needs of a growing company.

• 1:27Harry Stebbings?

  Learn more at svb.com/next. That's Silicon Valley Bank, ideas bank here. Let's face it though, also, everyone not only needs banking, but everyone today wants to start a podcast. But man, the incumbent toolset sucks for creating podcasts, take my word for it. And that's why I love Descript so much. Descript is the brand new way to record, edit and mix spoken word audio. But for me, the main reason I just love it is because it takes your audio and it turns it into text. And so you can actually edit the text, almost as if it's a Word document and remove the audio and the text that you don't want. And it's super simple and just the best tool that I've seen for editing by far. We love it here. And now with our team at 20 VC also, Descript has this amazing live collaboration feature so we can work on

• 2:10Harry Stebbings?

  edits in real time so we can comment people can agree disagree honestly if you want to master your new podcast you have to use to script for the process and you can find out more at script.com they really have built something special that's script.com and finally as a VC our job is to find the very best companies before anyone else does and as an operator you have to know who your competition is and how they're doing and that's where a specter comes in specter formerly called crunch decks essentially do you want to know what is the fastest growing company in your city or vertical well specter tracks 140 variables and growth signals from close to 17 million private companies worldwide and is a trusted partner to three out of the top 10 VCs to learn more check out

• 2:52Harry Stebbings?

  try specter.com that's try specter.com but that's quite enough from me so now it's time to meet our first founder of 2020 Kurt Rathman founder and CEO at scale factor

• 3:09Speaker 01

  You have now arrived at your destination.

• 3:12Harry Stebbings?

  Kurt it is such a pleasure to have you on the show today as I said I spoke to many of your investors most notably the wonderful Byron Dieter and John Fine but thank you so much for joining me today Kurt.

• 3:21Speaker 02

  Thanks for having me I've been a fan for quite some time so excited to be here.

• 3:24Harry Stebbings?

  That is very, very kind of you always nice to have a little ego boost at the beginning of an interview but I do want to start on you and so tell me how did you make your way into the world of startups and come to realize that you really wanted to change the way we do accounting with scale factor?

• 3:37Speaker 02

  Yeah, you know there's really you know looking back there's a number of things that have happened really over my life to get here and I think that's the first one is I'm a born and raised entrepreneur is very early on that I realized that I thought this way I was interacting on some avenues create value and so accepting that early on was key and ultimately the problem that we're solving at scale factor really started when I was 18 years old and I had a company in high school so landscape lighting company and so at that company while not a tech company what I was trying to do is solve a real time inventory environment so I had a garage full of inventory and I had a QuickBooks desktop computer and I was trying to get this accessible remotely and so hooking a QuickBooks desktop computer to

• 4:20Speaker 02

  A Palm Pilot with a very expensive at the time 3G cell signal to try to make it remote and work that way was really the beginning of saying, hey, there's an operational problem to solve here and applying it to a business. From there, I went to college. I went to the University of Texas here in Austin and I took a more traditional path at that point in time and became an accountant, became a CPA and ultimately went to work for KPMG in Big Four Public Accounting. And KPMG and that whole entire firm experience was very valuable, but I started to find myself really questing towards how a business operates and how I could affect change there. And so that led me to a small business in Denver, Colorado, where I ultimately had the breeding ground for this idea. And the way I would frame that is I had a big problem to solve. I had a really constrained

• 5:05Speaker 02

  budget to do that. And so that invoked this kind of fight or flight response where, you know, how do you do this with a minimum amount of resources? And then, you know, I added on, you know, inherent was just a sheer determination to find a better solution. You know, this is something what we do at Scale Factor, something I've seen clearly for many years and really have been solving the problem in some way or another for a good portion of my life at this point. So that's how we got here today. Kind of end that with, I became absolutely obsessed with solving this problem. And for those that spend a lot of time with me, they would probably tell you I'm still absolutely obsessed with solving the problem. So I think listening to the obsession and connecting the dots throughout time ultimately are responsible for us talking today.

• 5:43Harry Stebbings?

  And what an incredible journey it's been. But I do want to touch on that obsession first because we spoke to Michael at Canaan before the show and he said specifically around kind of obsession and mission drivenness. Do you believe that a founder needs to be mission driven and have founder market fit to build a huge company?

• 5:58Speaker 02

  You know, there's so many different ways to get to success. And I think connecting the dots in history would validate one form or the other. I ultimately think you have to be an expert and you can become an expert really fast. Or you might say more naturally, the path of least resistance is to come into the problem you're solving being an expert. So you either have to learn on the fly and get the quote unquote 10,000 hours under your belt, or you have to do that prior. For what we're doing here at Scale Factor, I'm not sure you could be successful not being an expert. This is a very technical problem we're solving from an accounting standpoint and financial standpoint. And then you add in the human emotion of a small business owner and somebody risking everything they've got to wake up every day and be an entrepreneur.

• 6:41Speaker 02

  And you add those two things together, I would lean more towards the side of being a founder that's mission driven and finding, really living the problem first is at least the path of least resistance to success.

• 6:53Harry Stebbings?

  Listen, you both know VCs and we both know that there's nothing they love more than an obsessive founder. And I wanted to start with that, really, surprise, surprise, I guess, given the name of the show, but the fundraising element, because you've got a super interesting fundraising path. I was hearing from John Fine and from Byron, he raised a series A, B, and C, all within 13 months. So I'm too intrigued not to start with that. It's a little bit unusual. So how did that rapid succession fundraising happen?

• 7:15Speaker 02

  Yeah, you know, the thing that's not in that story is we've been around for six years. And so you could say that it actually took a long, long time to fundraise venture backed dollars. It took three years to do that before we were operating for three years before I ever took any type of venture money.

• 7:30Harry Stebbings?

  Did you try?

• 7:31Speaker 02

  Did I try? Not particularly. It was much more of analyzing the scene, figuring out what we were doing as a company. We really spent a lot of time incubating the idea and getting boots on the ground, trying to figure out who our customer was and how they preferred to interact with us. What did they value? And how do we acquire them? How much are they going to pay? How do we keep them? All of these types of things really set on a path to answer and validate and then answer again before we took any venture dollars and really started focusing on scaling.

• 8:00Harry Stebbings?

  Absolutely. And then how did that play out in terms of the rapid succession? Sorry, I interrupted you.

• 8:05Speaker 02

  Yeah. So, you know, from there, we went into Techstars here in Austin. And during Techstars, that was the first time to really validate the investor pull and resonance to our idea and ultimately the problem we're trying to solve. So we took note at that point in time and we really set out to raise a million dollars. We ended up over subscribing that round to three and a half. And then it took our time from there to really do the things that we needed to do in the business to get off the ground. And that was bringing our engineering team in house, creating the foundation for sales and marketing and those scalable processes, and then really focusing on the series A partner. I took five months to raise the Series A and it wasn't because I didn't have the opportunity

• 8:45Speaker 02

  to to find a partner before that. It was much more my focus on finding the partner that I felt like I, you know, was was going to take my idea and take the traction that we had had and really evolve that and help me evolve that into something much greater. And so I took a lot of time doing the initial kind of Series A process from seed round. And then from there, you know, a lot of it fell into place. Our B and C rounds were preempted. That allowed us to to make the decisions possible to expand our timeframe and the problem that we were solving. And in some way, I've got, there's the aspect out here of do you take money if it's available? Or do you wait for this perfect circumstance? And I have generally a saying that's drink when you're fed. And so maybe I'm more saying, you know, you take money when it's available,

• 9:29Speaker 02

  but it really comes into the circumstance, comes into the problem you're trying to solve. What is the runway you really need to do that? And in our case, this is will take some time to do what we're doing. And in the category we're helping creating with many of other great companies on this race to intelligent finance. And so what I went after is saying, hey, up to this point, we have forced ourselves to have a pretty short term timeframe on problem solving and items we could deploy to do that. If I could have a longer horizon, that actually strategically plays in here because now we're at the point where I need a longer horizon to to solve some of the problems and to see that payoff. And that's ultimately why we decided to do A, B, and C in 13 months. But, you know, a lot of that was really premeditated by the Series A selection and joining forces with Michael Gilroy at Canon.

• 10:14Harry Stebbings?

  You mentioned that, the runway element. And I do want to talk about the resource allocation because it's a big mindset shift to go from the very lean, very focused resource allocation mindset to relative resource allocation abundance. Was that a challenging transition for you to make personally?

• 10:28Speaker 02

  You know, it is, and it constantly is today. I think that what I've worked on and what's instilled in the team and what we're still coming better at is really gaining that muscle between throttling these elements of growing and running a VC-backed startup. You know, this is not a normal game. Most of the businesses out in the world do not have VC dollars to power them to Inorganic things. And so what I look at, you know, I have a couple of things here. The first is a great team. I have a saying and a philosophy that the great team is always throttled at between eighty to one hundred and thirty percent. You can't run at one hundred and thirty percent forever because you really start to break things. You can't run at eighty percent forever because then you become complacent and you might lose some speed of play.

• 11:09Speaker 02

  I have that same saying here with context switching between quote unquote, "the land of abundance" and "the land of scarcity." And inherently fundraising kind of does that organically for a business. The cash on your balance sheet is reducing, you're forced to prioritize and focus on the things that are really gaining success and kill the things that aren't. And so that's a good thing. When you now go to the side of to really be strategically successful here, I need to have a longer runway, then you have to force that inorganically. And so that's what we do. We change the culture, we change the business where we've got a land of abundance and creativity. And then we start to say, okay, what are all the things we're working on? Let's go on a endeavor to really, really hone in focus in the business and see our traction and then we'll revert back to the other side.

• 11:51Speaker 02

  And so I think you have to be really good at the muscle building and that's the way we've approached it today.

• 11:56Harry Stebbings?

  I mean, obviously, as you said, the capital there does give you the ability to do some pretty inorganic things. When I spoke to John Fine, he asked in particular, "Beyond capital, what's been the biggest value add from your cap table that's benefited you most as a CEO?"

• 12:09Speaker 02

  You know, the biggest value add is the experience and the pattern matching from seeing this before. I have a philosophy and a thought and there's many other folks that have taken a stab at this, but you know, if you boil it down, I think VCs in general can do about five things for a company in varying levels and varying levels of expertise and execution. But the first would be they can write checks. The second is they can make intros to talent. The third is they can make intros to the ecosystem that you're in and partners of that ecosystem and those players that can help you along the way. Fourth, varying firms have different platforms that they provide, whether that be a recruiting element or a partnership element or a corp dev side of things. And those are kind of platform plays that differentiate VCs.

• 12:50Speaker 02

  And then the fifth is really the wisdom through osmosis of being around one another and just getting kind of some of the phone time and desk time and whiteboard time and whatnot. And so the biggest thing I have employed since the day in Techstars is that as a founder, you have to know that all those things are available. It's really your job to extract it. I think folks get into trouble when they think that a lot of these things are these kind of marketing elements of a particular VC or particular firm are going to be handed to them. And in some extent, yes, the email, you know, the intros will show up in the inbox. But I think it's also quite a misconception that the moment you decide to work with somebody, it just kind of comes to you. It's totally, that's not been my experience and not my philosophy behind it. My philosophy is I've got to go mine these things.

• 13:34Speaker 02

  I've got to go work, create, you know, the relationships and ultimately mine out what's beyond just the capital, to answer your question just directly. There's a lot of things, but it's not handed to you in any way.

• 13:45Harry Stebbings?

  My word, this conversation is making me so happy. In terms of the, sorry, and this is off schedule, but in terms of the value extraction now, I'm totally with you. How do you advise founders on how they can extract the best value from their investors? Is it investor updates? Is it asking directly, we have a problem here, I need your help? How do you advise founders on how to extract the most value?

• 14:03Speaker 02

  This is not going to answer your question directly, but I think it's, I think it's a little bit of everything. The investor updates are important because you need to provide folks that are not in the business every day enough context where they could even be helpful in the first place. But from there, you know, I guess the one thing I would say it's FaceTime. It's spending time together and then these things come out and organically start to come out. But you have to lock interests, you have to lock on problems, you have to let people into the company to the point where they can really help solve. And so it is opening the kimono, right? And it is being vulnerable and saying, here is exactly where I'm struggling today. And typically, every time I've done that, there is somebody right around the corner, right in, you know, in the inbox, within an hour, if I can tail down to the specific

• 14:48Speaker 02

  problem I'm having and provide the context around that, there is somebody that that investor knows, or at least somebody to talk to somebody that can help solve that. And then you just start on that journey and all of a sudden you're talking to an expert that's seen this movie 20 times before and you're getting best practices from somebody that's obviously seen success for the particular problem you're trying to solve.

• 15:06Harry Stebbings?

  Can I ask, have you found those areas on the flip side of that? The areas where? You often find founders think VCs add value, but actually they maybe don't.

• 15:14Speaker 02

  A lot of times it could be the, you know, overvaluing the brand name of either the the firm or the investor. I think that you have to get past that and it could be the other way around too. Maybe somebody that is investing in you isn't somebody that you would ultimately want to. If you could kind of wave a magic wand and so, you know, it comes down to, I think it's just the founder's responsibility to to provide value and add value. And I think that if you spoke to the investors at ScaleFactor and the folks that you even know, they would tell you that, you know, Kurt keeps us busy. And I view it that way, right? It's my job to to make sure that the the board and that the investors are continually working for the company. And quite frankly, I kind of view it as a competition for their time, right?

• 15:56Speaker 02

  They've got other portfolio companies and I want to make sure that they're spending as much time as I can get on ours and helping us solve our problems. So it's about running a great team and ultimately holding them accountable. It comes just the the surface level expectations, I think, either way, are where you can get yourself into trouble as a founder.

• 16:14Harry Stebbings?

  Can I ask, you mentioned the board members there and this is off schedule, so very unfair of me. But for you, was the board management aspect a difficult thing to really grapple? You know, this is the first time raising serious institutional capital for you. Was that a difficult thing for you to come to terms with in terms of how to effectively manage and communicate with the board?

• 16:30Speaker 02

  You know, it's a constant learning journey and it's a constant reevaluation of where we're at today and where we're heading. But the side of it is, it's my boardroom. It's a founder's boardroom, it's a CEO's boardroom. And so you've got to take control and you've got to build a team around that. And so ultimately, if you said, hey Kurt, list out your responsibilities as a CEO, I would list one of those that says, my job is to build healthy team. At the end of the day, I'm a professional team builder at the end of the day. And so the board is just like you're launching a new team internally. It's the same thing. You've got a new team member coming on board. How do you meld them together? How do you make sure that you go through the the quote unquote kind of forming, storming, norming stages? How do you do all that? And so it hasn't done anywhere where I've kind of been knocking my head against the wall. It's it's more so is how do I engage everybody?

• 17:15Speaker 02

  How do I make sure that we're spending the right amount of time where we're getting to know each other? We're also spending the right amount of A time where we're in front of a whiteboard and solving problems. And I think that you're not in the driver's seat is kind of where you can get yourself into trouble of actually being effective.

• 17:27Harry Stebbings?

  I'm so pleased you said that about kind of the energy and the engagement of bringing people on board and really blending them into the culture. Cause I want to talk about the culture. It was something that every single one of your investors mentioned, which is a huge compliment to you. But starting with Michael at Canaan, he said that energy physically hits you when you walk into the room and the building at scale factor. And you end up just wanting more of it. So he asked, what are some unique things you do at scale factor to build towards such a positive culture?

• 17:51Speaker 02

  You know, it's awesome to hear Michael say that and you know, to hear investors resonate about that. I think it's very intentional. I believe that when you walk into the building, we've got to do a number of things to make it a safe place for you to be the most creative. And ultimately do the best work of your entire life and your career. And so that comes into even the scent in the building, to the music playing, to who greets you and how people treat each other is very, very important. There's also a lot of things that we do to control density inside of the space. If you have too much space, the energy level is not there. Obviously, if you don't have enough space, the energy level is there. It's just not the right type of energy you're wanting. So we constantly are monitoring the density of the space that we, which we interact in. And that controls a lot of the energy flow.

• 18:36Speaker 02

  But one of the things that we've done since the very beginning of Scale Factor, you know, maybe a couple of months in, is really celebrate our wins as a team. There's a variety of reasons that we arrived to do that. But one of the things is a Friday at four thirty P M. We get together as now teams within the company. We were at one point just the entire company, but now it takes too long and it may not be as relevant for some team members. But we get together in a circle and you call out the win that you had. And it can be personal, it can be professional, it could be relative to you. And what that does is not only give you a pulse of what other people are working on and what other people are struggling with and what other people are overcoming. But it also lets you as a team member or even as an executive, there's weeks where you just don't have a good week.

• 19:21Speaker 02

  There's days where you just didn't have a good day. And to be around people that have had a good week and have had a good day and to see. That you know, more people have had a good week and a good day than people that have not allows you to kind of to get back in the seat and continue going forth. Where we found if we don't have those moments in our culture, it's really easy to go down a different direction and really questioning what you're doing and why you're doing it and all those things. And a lot of times as leaders in any business and specifically in a fast paced startup, our job is to pick people up and dust them off and to put them back in the seat. Say, hey, you're doing a good job. You just had a bad week here. And I think that you would feel that in the building throughout.

• 20:01Speaker 02

  And it's something that we are very protective of as well. That that is the way we're going to operate and that's kind of our cultural norm.

• 20:08Harry Stebbings?

  Can I ask, you said that about dusting people off and I'm off schedule and asking advice here. In the past, when I started companies, you know, had teams and it's a case of for me, I always struggled being the challenger. I was super at being the cheerleader, being the challenger was tougher. What advice would you give to someone who maybe graded, hey, Kurt, you can do this. But when it comes to actually, we've consistently not hit numbers and this is not acceptable. What advice would you have to someone who struggles more with that challenger side?

• 20:33Speaker 02

  You know, I take it through a process and it starts with what I call the LFF conversation. And that is the let's face the facts conversation and we can do that very objectively. We can try to remove as much emotion as possible. And if we could just tie that back to data of why we're here. Then we can go on a process of how we're going to solve for that in the next repetition of time. And so really kind of focusing on let's face the facts and maybe even writing those down. So you can come back and look and seeing if you're successful is ultimately the thing I revert back to. If we're facing the facts over and over again around the same things. And when you can demonstrate that, it starts to become a really objective conversation, whether we're being successful or not. And I try to approach the problem that way instead of bringing a lot of emotion to the problem.

• 21:18Speaker 02

  Because that's where things start to go off the rails with performance management. And ultimately your ability to dust somebody off versus just leave them on the floor, right? And so it's important that you show the data which you're operating off of. And then you can bring in the human empathy and you know, relational component. And if you can keep those separate, it does wonders for how people are will self correct and they'll realize whether they're that they themselves are successful or not.

• 21:43Harry Stebbings?

  I totally agree, especially in terms of the separation. I think that makes it much easier and really good advice. So I think you should invoice me for that. I do want to ask, you said there about how it started off as getting together as the whole company and now it's teams. I spoke to John Fine and he said you've scaled the culture specifically so well, which is the hardest thing to do. So how do you retain the design culture with the incredible growth that you've had and now expansion into multiple offices?

• 22:06Speaker 02

  You know, it's something that we are testing every day, specifically right now. A little bit into the weeds, but it's relevant for this answer is multiple offices. We have offices in Denver and in Vancouver, B C and people operating really all over the country to some degree for various specific items. But here in Austin, we're we're operating out of three separate offices. And you might say, hey, Kurt, why are you operating out of three separate offices in Austin? And I would answer because our space that houses everybody is is not done yet. And while you go into the commercial real estate aspect of Austin, but we were not able to time hyper growth specifically with the space requirements that we needed. And so we sent our product and engineering team to a location.

• 22:48Speaker 02

  We had our customer success and support teams in a location and sales and marketing in a location. And that has tested us tremendously as a culture. And the things that we have reverted back to are our core pillars of the standards of which we have, that which we will engage with each other and which we will create success and which we won't. And so I think keeping those is very key as the foundation. But ultimately, as you scale, the thing I tell people when I'm meeting them for the first day and our employee onboarding and team member onboarding is that really the culture of scale factor is now in their hand. The new people coming to the business are actually framing your culture. And that is an aspect of, you know, what I'm really saying is the culture is an ever evolving thing and you have to let it evolve.

• 23:30Speaker 02

  And so as as you scale and you do all these things, you have to steer it, but it takes on a life of its own. And it comes back to us, the thing that we do is is you've got to react fast when something's going off the rails. And and you know, an example of that is very vivid, just something that we've gone through here this year is that having multiple offices can decrease communication. And we got some feedback, you know, really surveying our team. And really just from a bunch of different sensors in the business that we were not doing a good job at communication specifically between our offices here in Austin. And so within 24 hours, we came up with a plan to increase communication while we then could go back and put in some more concrete and kind of infrastructure on how to not be in this spot again. And so that plan was

• 24:11Speaker 02

  just make sure you're scrappy. Even at 200 people, we said, what's the fastest way we can get to a result here? And what we ultimately did is we launched a show called Scale World Live. And Scale World Live is really powered by Zoom and the webinar version of Zoom. And what we do is we have a live TV show that's actually about to start here in about 20 minutes. As we go, it's on Fridays and we've got somebody hosting that show. And what we do is we have guests from all of our offices around all of our operations come on and present something they're working on that's specific to them that they're excited about. And we're bringing together the communication of all the offices doing that. And so I think you've got a, you know, if I was going to frame it up in a more concise response to you, it's around keeping the core pillars of how you got

• 24:53Speaker 02

  here today, allowing your new team members to really craft their culture. Because if you did a good job recruiting, they should then take the torch and run with it. And then lastly is, don't be afraid to be scrappy at all phases. And when you sense there's something wrong, act quickly, act diligently, don't try to overcomplicate. We already had Zoom, everybody's got Zoom and this is my turn into a Zoom endorsement, but it's really worked for us where we said, what do we have? What can we do? And how can we launch this on Monday? And that's how Scale World Live came about.

• 25:20Harry Stebbings?

  I mean, I absolutely love that. I've never heard that. It's like a glue between teams. But I do want to ask, you mentioned the words recruiting there, you mentioned onboarding. There's often, and you also mentioned, obviously, your location being Austin. There's often this view that if you're not in a tech hub like San Francisco or Silicon Valley, that you won't be able to get the best talent. And that is, I've had it many times said on the show, to be blunt. So my question to you is, how do you respond to this? And how do you hire the best not being in a tech hub?

• 25:46Speaker 02

  You know, I would say that perspective and experience is everything, you know, and more so you're going to get a little bit, you know, the determination out of me. It's the CEO's job to ultimately recruit talent to the business. And that can take several years. There's folks that have joined Scale Factor that have been recruiting for upwards of Four years and you can uproot anybody from whatever location if you're willing to put in that work. Right. If you can expose them to the company over time, if you can employ them where you're really utilizing their expertise and and putting it into play as maybe even advisor to the business before they they might be on full time. The fascination of when you find that right match, it is location doesn't really matter. Now there's logistics of how do you move and how do you move a family and all that stuff.

• 26:29Speaker 02

  And that might be annoying to people, but we've got a really great process to work through that as well. And so I would agree to some extent that you've got the idea that, you know, a place like Austin or a place like Denver doesn't have as many companies and by virtue of that, there's not as many people available. And what I mean is specifically VC backed, high growth companies. And so there's not as many of those folks available to come in and do the things they've done before. And while that is true, I don't let it stop me at all. There's plenty of ways where you can engage the most talented people to help solve your problems. And and location is just a an attribute of of the problem solving process. I think that the secret weapon is one that I would apply everywhere in this landscape. But the idea is as a CEO, if you're really going to recruit, you got to get on a plane. You got to be willing to get on a plane for almost everything.

• 27:13Speaker 02

  I'm actually headed out to Los Angeles here in a couple of weeks because I'm actively focused on recruiting somebody. And I'm very intent on it and I'm going to go see them. I'm going to spend a day with them where I'm going to convince them that this is the place for the next part of their career. And so I think you got to use all the tools in the toolbox, but the thing is you can't recruit. If you're really going to recruit top tier talent to cities like Austin and beyond that maybe aren't in the the coasts in the quote unquote Bay area. You just got to put in the work and you got to put in the hustle. And I think if you do that, you can be rather successful.

• 27:43Harry Stebbings?

  Final one before the quick fire, but you said there about the importance of getting on a plane. People always say, you know what, when it comes to fundraising also, that's another trouble about not being in the valley. You've got to get on a plane. How do you think about the often stereotype around the challenges of fundraising when not in the valley?

• 27:58Speaker 02

  You know, I think that, you know, there's a couple of things that are happening. Number one is the entire landscape is changing. You're seeing where maybe 10 years ago, investors would not want to invest out of their their jurisdiction, their location because it was too far. Away and they wanted to be able to meet and go down the streets and so forth and so on. I think the world's changed where there's more collaborative ways to communicate and have that touch that no longer require the physical element of that, right? But on the other side of that is you gotta get on a plane. You know, Byron would tell you, and I think Thomas from COTU as well is, you know, as we were going through the partner meeting process, it was, you know, they're sending a Zoom link over and saying, hey, you know, zoom in at this time and that'll be that. And, and I, I said, no, that's not how I'm going to do it. Would you have me in person?

• 28:41Speaker 02

  Cause if you'd have me in person, I would gladly be there in person. And so it comes down to, at the end of the day, remove all the technology, remove all the things. You gotta be face to face with people. You gotta look eyeballs to eyeballs. You gotta shake their hand. You gotta have that, that interaction because you're setting the foundation for a relationship that can be 10 plus years through multiple life events and circumstances. And thinking that you're just gonna do it via Zoom or, or a phone call. I don't necessarily think you're setting the, the proper foundation for what's required. So I, I would go back to be willing to go to where they're at. That, that makes a lot of difference in the world.

• 29:12Harry Stebbings?

  There's a, I totally apply that today. I don't even do first calls via Zoom. I just can't get the full measure of someone by Zoom, even in the first meeting where I still think it's like crucial. So totally with you there and that makes me very happy to hear that I'm not totally antiquated despite my youth. But I do wanna finish on the quick fire round, Kurt. So I say a short statement and you hit me with your immediate thoughts. Are you ready to rock and roll?

• 29:32Speaker 02

  Let's do it.

• 29:33Harry Stebbings?

  Okay. So favorite book and why?

• 29:35Speaker 02

  You know, my current favorite book is the Empowered Challenger Playbook by a local entrepreneur here in Austin called Prince Howe. It's about how brands change the game and really challenge the incumbent brand.

• 29:45Harry Stebbings?

  What's the advice to first time founders on successful board management?

• 29:49Speaker 02

  Take control of the board. It is your boardroom and you can't forget that.

• 29:53Harry Stebbings?

  What's your biggest strength and then your biggest weakness?

• 29:56Speaker 02

  You know, my biggest strength, and this is the way I view myself, right? So maybe other people would disagree, but a biggest strength is just connecting with people. Maybe my comments about getting on a plane are suggestive of that. The biggest weakness is kind of the other flip side of that is, is I can spend a lot of time creating the connection and creating the relationship with folks. And it tends to, you know, displace other things I'm working on or other perceived important things that I'm working on. And so the time management side of things could be a weakness.

• 30:20Harry Stebbings?

  I think we totally share that one. Uh, tell me the hardest. Element of your role with Scale Factor today.

• 30:25Speaker 02

  You know, I love this job. I think I'm, you know, I wouldn't trade it for the world. I look for opportunities to improve in a tactical kind of evolution of, you know, we're creating a category in line with other folks that, you know, as I've said, on the race to intelligent finance. And so it is just scaling, making sure people are communicating. It's the tactical day-to-day nature that is hard, right? And maybe you call that execution, but it's having the awareness and then diving in and really making things happen and then measuring yourself, whether you did that or not, you know, it's hard. That's if it were easy, everybody would do it.

• 30:56Harry Stebbings?

  Can I ask, is it a winner-take-all market, do you think?

• 30:59Speaker 02

  Uh, no, no, there's 29 million small businesses just here in the US. I think that it's a variety of key players looking to evolve. And if anything, this is going to be a strong partnership market before it would ever be a winner-take-all market. There's quite a bit of work to be done to get to where we need to go before I think you could consider any type of winner-take-all.

• 31:18Harry Stebbings?

  I love this next one. Who was the first investor in Scale Factor and how did that come about?

• 31:23Speaker 02

  You know, the first investor is a close friend of mine, Aaron Amar. I grew up with Aaron. I went to high school with Aaron. It was a close friend that had the trust in my execution, irregardless of the vision and the mission that I had at that time. He saw early on that, you know, he would invest in this person that would do everything it took to make a return on that investment. And so it came down to that personal relationship.

• 31:43Harry Stebbings?

  I love that and I'm sure he's very pleased now. Tell me, what do you believe that most around you disbelieve?

• 31:49Speaker 02

  You know, it's becoming less and less now, but in 2014, when it was, it was the space that we're pioneering. And now as we see the world coming together and the space evolve, I think that's changing. But a large part of my journey was just convincing people that what we're doing is the way the world's going to move. You know, the narrative of what you've heard me say in 2014 to vastly what I say today has not changed. And so I think when you're in a category creation type business, you just go through this disbelief. And for me, you've got to figure out a way to turn that and kind of throw that log of disbelief onto the fire and let it keep powering you.

• 32:25Harry Stebbings?

  I want to finish on the next five years for you and for Scale Factor. What's that exciting roadmap ahead?

• 32:30Speaker 02

  You know, we feel like we're just getting started. For me personally, it's about finding leverage in everything I do to increase my impact, both personally and professionally, and continuing to scale with the business. My gifts at this point are seeing the future and driving a lot of humans towards that common goal. So the next five years for ScaleFactor, we want to become a de facto solution that you run your small business on. And we want to start to feel like we're making an impact on the entire small business ecosystem. And I think five years is a long time in startup land, but you know, it could take longer than five years for us to really complete the goals that we want to.

• 33:05Harry Stebbings?

  Kurt, honestly, this has been such a pleasure. I spoke to, as I said, many investors. They gave me so much help and I totally see why. They view it as such a joy working with you. So thank you so much for coming on the show today.

• 33:16Speaker 02

  Thank you very much for having me. A lot of fun.

• 33:20Harry Stebbings?

  My word, I absolutely loved having Kurt on the show there and such exciting times ahead with ScaleFactor. If you'd like to see more from us behind the scenes here at the 20 Minute VC, then you can on Instagram at HStubbings1996 with two Bs. I do always love to see you there. But before we leave you today, this episode is brought to you by Silicon Valley Bank. For over 35 years, Silicon Valley Bank has been the bank for visionaries of all kinds, people and businesses who've revolutionized everything from software to social media, from workspaces to wine. With nimble banking services and solutions, Silicon Valley Bank helps startups adapt to the changing needs of a growing company. Learn more at svb.com backslash next. That's Silicon Valley Bank, ideas bank here. Let's face it though, also, everyone not only needs banking, but everyone today wants to start a podcast.

• 34:04Harry Stebbings?

  But man, the incumbent toolset sucks for creating podcasts. Take my word for it. And that's why I love Descript so much. Descript is the brand new way to record, edit and mix spoken word audio. But for me, the main reason I just love it is because it takes your audio and it turns it into text. And so you can actually edit the text almost as if it's a word document and remove the audio and the text that you don't want. And it's super simple and just the best tool that I've seen for editing by far. We love it here. And now with our team at 20VC also, Descript has this amazing live collaboration feature. So we can work on the edits in real time. So we can comment, people can agree, disagree. Honestly, if you want to master your new podcast, you have To use Descript for the process and you can find out more at Descript.com.

• 34:46Harry Stebbings?

  They really have built something special, that's Descript.com. And finally, as a VC, our job is to find the very best companies before anyone else does. And as an operator, you have to know who your competition is and how they're doing. And that's where Spectre comes in. Spectre, formerly called CrunchDex. Essentially, do you want to know what is the fastest growing company in your city or vertical? Well, Spectre tracks 140 variables and growth signals from close to 17 million private companies worldwide and is a trusted partner to three out of the top 10 VCs. To learn more, check out trispector.com, that's trispector.com. As always, I so appreciate all your support and I can't wait to bring you a fantastic episode next week.